Tackling the Uncertain Presidential Economic Cycle

Learn more about key figures of stock-market performance from past election seasons.

Fall has arrived, and the NFL season is underway. Although we are eager to take in all the highlight catches, bone-crushing tackles, and last minute Hail Mary victories, the most intriguing story line will be from a different season in a U.S. citizen's life: the presidential election!

Election season can bring fear, worries, and changes in our economy, government, and personal lives. While these are normal worries to have, we can use history to understand how elections may affect the economy.

Here are some key figures of stock-market performance to look at from past election seasons.

S&P 500® Index Had a Negative Return in Three of 21 Election Years

The return of the S&P 500® index for each election year since 1928 shows that of the last 21 election years, there have been only three years where the S&P 500 index® had a negative return. Please keep in mind that the current equity index was not finalized and launched until March 4, 1957.

S&P 500® Index Posted the Weakest Returns in the First Year of an Election Cycle

In "Presidential Cycle," Ned Davis Research notes the S&P 500® index posted its weakest returns in the first year of the four-year election cycle. Since 1900, stocks have gained just 3.4% on average in the post-election year, compared with gains of 4.0% in the midterm year, 11.3% in the pre-election year, and 9.5% in an election year.

Democratic Presidents Are Historically Better for Stocks1

When it comes to your clients' portfolios, it doesn’t matter much which party wins the White House, as many variables besides party affiliation affect these average returns. However, looking back at the S&P 500® since the year 1945, stocks performed well when Democrats were in office, with the average annual gain of 11.1% compared to 6.3% per year during Republican administrations.

A Republican Congress Has Been Good for Stocks2

Before Democrats take a victory lap, let’s take a look at what Sam Stovall, chief equity strategist at S&P Capital IQ concluded when looking at performance data based on which party controls Congress. Over the past 28 years, the verdict was that the market had its best years when the nation had a Republican President with a Republican-controlled congress. Stovall's stats indicate that the annual return was 15.1%3 compared to 9.8%4 for a Democratic President and Congress. The President with the highest annual returns since WWII was Gerald Ford from August 1974 to January 1977, and the S&P 500® yielded an 18.6% average gain per year.

Conclusion

As with every NFL season, there are peaks and valleys in presidential cycles, which depend on different market conditions and economic factors. Although history can tell us trends and statistics about the markets, this does not always provide hints about what the future holds. We can only look at the data as an educational tool to understand how markets have reacted in the past to major events.

Now might be a great time to review your clients' portfolios to determine if their appetites for risk mirror their retirement strategies and portfolios. If you have any questions, please contact your internal wholesaler at (800) 722-2333.

S&P 500® is a registered trademark of Standard & Poor’s Financial Services LLC. The S&P 500® Index is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the U.S. stock market. Indexes cannot be invested in directly.Past performance is not indicative of future results.
"Presidential Elections and Stock Market Returns." Retirement Decisions. The Balance, November 2016.
Shell, Adam, and USA Today. "History on How Presidential Elections Affect Stock Markets." ABC News, November 2016.1Stovall, Sam. "It’s An Election Year — What Does This Mean For The Market?" S&P Global Market Intelligence. S&P Dow Jones Indices LLC, October 2016.2Long, Heather. "Democrats vs. Republicans: Who's Better for Stocks?" CNN Money, October 28, 2015.
3Republicans had a unified White House and Congress 6 of the 28 years
4Democrats had a unified White House and Congress 22 of the 28
Stovall, Sam. "Election Uncertainty: Performances" S&P Global Market Intelligence. S&P Dow Jones Indices LLC, May 2016.

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